Archive for the ‘Interest Only Lifetime Mortgages’ Category

Further evidence of the progress & changes within the equity release industry has been witnessed this week after Stonehaven rebranded its name to ‘Retirement Advantage’. With effect from 26th May 2015, all Stonehaven’s equity release plans will come under the umbrella of Retirement Advantage.

Who are Stonehaven?

Stonehaven equity release was formed in 2006 as a provider of not just traditional lump sum lifetime mortgages, but innovative interest only lifetime mortgages with a difference. Their concept of being able to service the interest, thus rendering a level lifetime mortgage balance outlived the more conventional mortgage products such as the Halifax Retirement Home Plan which was withdrawn in August 2011.

Stonehaven = Innovation

To date, the Stonehaven range of interest only lifetime mortgages have stood the test of time. It is only recently that new hybrid versions of the Stonehaven Interest Select plans have been developed & now introduced. These voluntary repayment plans from the likes of Hodge Lifetime, Aviva, Newlife & now following suit – Stonehaven, have revolutionised the way equity release is perceived. It is now just the general public & journalists who need to take note of the new wave of flexible lifetime mortgages that can be tailored to any client’s requirements.

Stonehaven’s Recent history

Stonehaven’s success resulted in the company being taken over by MGM in 2014 and slowly their products have been redesigned & renamed accordingly, with a simplification of their offering – Interest Select, Lump Sum & Voluntary Select. Each product now has two further options depending on the level of borrowing required (loan-to-value) & ultimately also affects the interest rate applied. Board level changes have since occurred and the people who were at the core of their initial operation and built their model around the wider distribution model of using mortgage intermediaries as a source of referral business, have since departed.

The New Retirement Arena

We now have a new era in retirement planning & finances. With the demographics of the UK changing, longevity & health factors all combining to make insurers change the way the retirement landscape is evolving. The recent annuity changes have impacted severely on annuity providers of which MGM Advantage has been a major player in this market. These annuity & life insurance companies have had to rethink how retirees will need to manage their finances and stretch them further into retirement. This is probably only the start of what is to come for the over 55’s in the new retirement arena as new products are developed to cater for their needs.

MGM and Stonehaven Together = Retirement Advantage

Bringing together two successful retirement companies should lead to a complement of retirement products that can provide retirement solutions. Both MGM Advantage’s annuity and Stonehaven’s lifetime mortgage products are therefore suited to this retirement solution goal. The new retirement brand of Retirement Advantage will further strengthen their retirement proposition with a new retirement account launching soon.

Retirement Advantage is therefore one of the first significant mergers we may see in the retirement arena as equity lenders & insurers vie for the ever more lucrative retirement space. Equity release and annuities are changing for the better, hopefully the sign of more innovative thinking ahead.

For details on Retirement Advantage product range visit our website here where all their lifetime mortgage deals are listed along with a quote request facility.

Are you sure an interest only lifetime mortgage is the best product for you? Are you even sure any lifetime mortgage is correct for you? Entering retirement can be a daunting prospect when you are cash poor, but asset rich. You want to know you have a place to live, plenty of money to live on, and can enjoy the retirement you worked so hard for. Equity releases like lifetime mortgages can help you enjoy that life if it is the right product for your situation. However, there is no ‘one product fits all’ scheme out there. There are choices like interest only lifetime equity releases, enhanced equity release schemes & new voluntary repayment plans. Each comes with their own set of USP’s and these are what you need to ascertain in order to discover which the best equity release scheme is for you.

The Interest Only Lifetime Mortgage Advantage
An interest only lifetime mortgage provides you with retirement funds, where you borrow a capital lump sum and in return pay a monthly interest-only amount. This amount can be the full interest that accrued, or in some cases only £25 per month. It depends on your budget and what you can afford. If you pay the entire interest that accrues per month then the principle balance remains the same for the life of the mortgage. At death or moving to an assisted living facility, you would repay the principle balance at that point. Any equity left in the home would be inheritance for your family. The advantage is keeping a little inheritance for your family versus spending it all on your retirement and the repayment of the loan.

Starting with the Interest Only Lifetime Mortgage Calculator
Now that you understand what an interest only lifetime mortgage offers, you need to find out if it is an affordable option for you. There is no point in speaking with any lender of these mortgages if you cannot afford it, or afford the £25 per month minimum interest payment. An interest only lifetime mortgage calculator can help you determine if you can afford the mortgage. For some you may not be ready to speak with a qualified specialist.

Others have spoken with a qualified specialist and received a value that seems like they should accept it. In fact there are many who accept the first offer they receive from one of the big providers of the loans because they believe it is the best option. Yet, they never once use an interest only calculator to see the potentials from other companies. This is where professional equity release advice is needed to compare the whole lifetime mortgage & home reversion marketplace.

Big companies have done well to establish their equity release brand. They have great marketing skills and the advertising budget to keep in the limelight. However, it does not mean they offer the best products for everyone including on their interest only lifetime mortgages. The only way to find out who has the best is by using a calculator to determine what other companies are able to offer you. There are all-in-one calculators from the likes of Equity Release Supermarket that look at all equity release plans and then provide a table of different mortgage lenders. In this way you can access all the estimate data you need to make an informed decision.

What Inputs are Required for the Calculation?
Now that you understand the reason for starting with a calculator to determine the estimate and potential equity release options, you need to understand what the calculator will ask for and why. You will be asked for your full name, phone number, email address, age, health, and property value from some of the best calculators. Some may only ask for your personal data and then say the information is in the email—this is data mining and of no help to you. You want a calculator that gives you instant results and at least asks for your age, health, and property value. This is all a calculator needs to offer accurate results.

Your age determines your life expectancy. Your health if good or poor determines if you will live longer or shorter than the average healthy person. There is also the assumption that males live shorter lives than females, so some calculators even want to know this distinction or if you are a couple in which case the age of the youngest homeowner has to be used in the calculator.

The age and the property value determine the loan to value percentage or estimate of funds you can unlock in equity. The loan to value is only an estimate based on the information you supply to the calculator. If you do not have an accurate property value, then you will have an inaccurate estimate. Zoopla and other websites can help you find as close an estimate to accurate property value as possible.

An important factor is making sure you use an interest only calculator or all-in-one when you want to find out about interest only loans. The calculator has to determine the estimate based on the amount of interest you will pay back each month versus property value. In this way the calculator can tell you if you can take more or less based on the estimated interest payment. It also leads to the decision of whether the loan is the right equity release for you.

The Next Steps in your Interest Only Lifetime Mortgage Calculation
After you determine that a lifetime interest only mortgage is right for you, you need to take the next step in looking at comparison tables and finding the best equity release company for you. You have a potential value that is as accurate as possible given the data you had to input into the calculator.

Now you know if you can afford the loan and if the interest payments are possible. When you speak with a company about interest only lifetime mortgages and calculator results, you can ask questions about their differences in calculations as well as some of their qualification criteria. You can also find this online and use comparison websites to see the typical estimate for your age, health and property value.

Make certain that you have an informed decision so that you can speak with a qualified equity release representative to obtain the best possible interest only lifetime mortgage for you. You may also need to wait till you are slightly older to get better results, at least with a calculator you will know. But as long as you have reached the age of 55, then a lifetime interest only calculator & mortgage is available to you.

It has recently come to my attention, having watched my own daughter attempt to buy her 1st property, how difficult it has become for 1st time buyers to fulfil their dreams of becoming a homeowner.

It also occurred to me that EQUITY RELEASE could in fact play a significant role in assisting the “Bank of Mum and Dad” and others in providing funds to enable these dreams to come true.

First some FACTS:

The average age for 1st time buyers is now 29

2/3rds of 1st time buyers now turn to the Bank of Mum and Dad (BoMAD) for help

30 years ago 12% of income was needed for a deposit on a property. Today this is staggering 82%!

The cost of an average house in the UK is 10 times bigger than the average salary rising to 14 times in London

In all but 2 regions in the UK, prices are 7 or more times the average salary for that area (Office of National Statistics)

More than 3.3 million 20-34 year olds were still living with their parents in 2013

Although these figures clearly indicate it is becoming almost impossible for 1st time buyers to get on the property ladder, help could be at hand – YES, from the “Bank of Mum and Dad”

Parents are an obvious first point of call. However with rising living costs, low interest rates and diminishing savings pots, it has become increasingly more difficult for mum and dad to find surplus funds to gift to their children, grandchildren or loved ones, to assist in fulfilling the dream of property ownership.

However, there could be a way to take an early inheritance from parents now in order to benefit 1st time buyers when the money is needed the most!

A special type of retirement mortgage commonly known as Equity Release could potentially unlock cash tied up in a parent’s property. This can enable mum & dad to generate sufficient funds to gift as a deposit on a property purchase for their loved ones.

What is equity release?

Equity release schemes are available in two formats – home reversion & the more popular lifetime mortgage. Both of these equity release schemes enable people who own their main residence to release a percentage of its value in return for a tax-free cash lump sum. These two types of equity release mortgages then run for the rest of your life & only repaid once upon death or moving into long term care.

The equity release scheme known as a lifetime mortgage has proven the most popular due to its flexibility. This has been strengthened this year with providers such as Hodge Lifetime & Aviva both providing an option to repay upto 10% of the original capital borrowed each year. Therefore, control over its final balance, or even repayment of the whole scheme over the longer term could represent a serious possibility, for either parents to pay, or the children themselves!

Lifetime mortgages are available to those aged 55+, with a minimum property value of £60,000. The amount that can be borrowed is not always based on affordability, but on factors such as age & property value. Effectively, the older you are, the greater amount of equity you can release.

Following a release of the equity, the lifetime mortgage company places a first legal charge on the property. This is exactly the same as any conventional mortgage and 100% legal ownership is still retained by the client providing peace of mind.

Typically, someone age 60 could release equity of between 18-25.5% of the value of the property, dependent on the lender concerned. These equity release funds can be spent on anything you like, however a sensible & cautious approach is always advised. Therefore, parents looking to assist their children onto the property ladder, a lifetime mortgage could prove an effective mortgage vehicle to achieve this goal.

Which equity release schemes can help 1st time buyers?

Equity release schemes have become a lot more flexible and innovative these days. You can choose to make NO repayments and have the interest added to the loan which is known as a roll-up lifetime mortgage. The amount borrowed plus any interest accrued is repaid upon sale of the property. This would happen on death (last death if joint plan) or having to go into long term permanent care. Thought must be given here should there be more than one beneficiary. With an increasing balance & possibly reducing net equity figure, consideration must be afforded to any remaining beneficiaries as to what they may potentially receive at the end of the day?

However, there are new repayment versions of equity release schemes that have proven even more popular with parents looking to securely gift money to their children to help with a property purchase.

Interest only lifetime mortgages from Stonehaven & more2life will allow the repayment of just the interest only element. By repaying interest charged each month prevents the loan from increasing and thus remains level for the rest of the mortgagor’s life. This is a great idea when there is more than one child involved. The problem has always been how to separate the gift now, from the overall inheritance at the end of the day if more than one child is involved?

The solution is having an interest only lifetime mortgage. By knowing in advance what the balance will be, this loan amount can be deducted from that child’s share of the inheritance at the end of the day. This would be even fairer for the other siblings, should that child also pay the monthly premiums on behalf of the Bank of Mum & Dad!

NEW -Voluntary partial repayment plans

Equity Release Supermarket now has access to specialist equity release schemes where there is the option to repay up to 10% of the original capital released each year without any early repayment charges. These equity release schemes through Aviva & Hodge Lifetime have proved popular for those not just looking to repay the interest, but also the opportunity to repay the equity release scheme in full over approximately 16-17 years. These voluntary partial repayment equity release schemes are proving to be the next generation of the equity release market.

How is the Bank of Mum & Dad protected?

All the equity release schemes we recommend are members of the Equity Release Council, which means that there are certain guarantees built into them for consumer protection. As a minimum the Equity Release Council will ensure the following guarantees are included:-

The schemes are portable and can be transferred to another qualifying property should you wish to move in the future

There is a no-negative equity guarantee which means a debt cannot be left to your estate even if the value of the property becomes less than the balance of the loan outstanding

You can live in your house for as long as you wish and with a lifetime mortgage you retain full ownership

They can be repaid at any time, subject to potential early repayment charges

Benefits of using Equity Release

Contrary to directly gifting your property to your children, by using equity release to gift instead, would avoid any Capital Gains Tax as the main residence is retained by the client. There could still be a potential Inheritance Tax liability, but only if the client died within 7 years of the gift.

The lifetime mortgage would be a deductible liability against the client’s estate, reducing the value being taxed and although interest would have to be paid on the loan; this could still prove beneficial to both the client and those receiving the gift. Always consult a tax expert on these matters in conjunction with your independent equity release adviser.

Of course let’s not forget the best part of this!

The potential to fulfil the dreams of our loved ones in an age where quite frankly, property purchase is almost becoming nothing more than just a dream for some. The joys of parenthood!

Next Steps…

I would be delighted to offer a FREE initial consultation to discuss any of the above matters relating to how equity release can help your children step onto the property ladder.

Having been in the equity release industry for the past 14 years, there has never been as much optimism & confidence in this sector as there is now. Against a backdrop of reductions & barriers to lending in retirement, the equity release marketplace is expanding faster than most other areas of financial services.

Equity release 2014 holds the greatest number of reasons why the over 55 age group are now considering equity release schemes as their route to financial freedom & lifestyle improvements.

But first we need to understand the issues arising in 2014 for many retirees and how the stress associated with managing retirement finances can be alleviated. Furthermore, we’ll discuss why there is a change in attitude towards equity release, people’s inheritance and how the equity release lenders are developing products to meet the future needs of today’s baby boomers.

So why now & what are the reasons?

Firstly, it looks like 2013 laid the foundations for the recovery of the equity release market. A record £106billion equity release lending took place, which was a 10% increase on the previous year and this takes us back to the halcyon equity release days of 2006. But the numbers do not explain the underlying reasons, only the resultant effect.

I believe the huge growth in demand is down to a number of factors as follows:-

1. Baby Boomers – Primarily there are a record number of so called ‘baby boomers’ who are reaching retirement age. It is estimated that up until 2018 record numbers of upto 700,000 people will turn 65 each year and begin to draw their pensions and purchase annuities.

At that point, once the new financial landscape is established, will it dawn on many that the difference that retirement has made to their disposable incomes & the sacrifices & cut backs that will need to be made. But surely retirement should be time to retire & relax & enjoy the fruits of one’s career?

The transition from a paid salary to a reduced fixed pension can be difficult and for some, one many never really come to terms with. There have been many cases at Equity Release Supermarket, whereby following the first few years of retirement we are arranging equity release for the consolidation of debts such as credit cards & loans. This was a result of continued spending following retirement without carrying out what should be a mandatory income & expenditure analysis.

2. Indebtedness – Many of these baby boomers reaching retirement have grown use to managing debt during their working lives. This generation have lived through vast fluctuations in the economy such as interest rates, inflation & the recent credit crunch. Having come through the worst of this & still showing such positive signs of equity, gives them the confidence of maintaining such debts into retirement. Afterall, this age group are probably the ones with the best repayment history, credit record, guaranteed incomes and all coming with security of tenure in their properties!

A recent study showed that one in six over 65’s expect to borrow money in retirement to meet their retirement goals. In fact in the last year alone, 16% of over 65’s applied for a loan or credit card. The issue nowadays is of course that credit is not as readily available and one in ten applications from over 55’s will be declined, as lenders become far less willing to lend into retirement.

This applies to mortgages also. Lenders are increasingly calling in mortgage balances from customers aged over 55. It’s estimated 1.3 million households over 55 are still paying their mortgage, of which 289,000 over 65 year olds are still saddled with a mortgage debt! These are the people who will be looking towards equity release solutions in 2014 & beyond.

3. Interest only Mortgage Prisoners – Worse still are the Financial Conduct Authority (FCA) figures confirming the size of the ‘interest only time bomb’ looming. Of the volume of interest only mortgages due for repayment by 2020, 1 in 10 of these mortgages have NO repayment plan and upto 1.3 million interest only borrowers face shortfalls averaging £72,000.

So how will these people find these shortfalls and where do they turn for advice?

Well as we mentioned, lending into retirement has been constricted by the FCA’s stance and with MMR (Mortgage Market Review) being implemented in April 2014, lenders are under further scrutiny as proof of affordability becomes entirely their responsibility.

Therefore, as we are already seeing by the upturn in the volumes of business, the equity release industry is becoming the saviour for the interest only mortgage short fallers. In providing an equity release safety net, many of these trapped borrowers have another option than having reluctantly to sell their homes to fund the shortfall.

However, the solution will only be made available should loan-to-values fall within lender criteria, which for lifetime mortgages are currently stand at a maximum of 30% at age 65, rising to a maximum of 54% by age 85. These calculations can be confirmed using the Equity Release Supermarket calculator.

However, two further factors could influence these results; health & lifestyle and incomes.

Firstly, should a history of adverse health be prevalent then a range of enhanced lifetime mortgage products are available which will release a greater lump sum than standard equity release schemes. Secondly, the signs are more retirement mortgages could be introduced during 2014. Already the Hodge Retirement Mortgage has been bravely launched against the tide of lenders withdrawing such products. Currently, the Hodge Retirement Mortgage will lend upto 50% of the property value at the current interest rate of 4.75% (5.1% APR), subject to income(s). Click here for details on the Hodge Retirement Mortgage or call 0800 678 5159.

4. House Purchase/Moving Home – we are seeing the data already in 2014 from mortgage lenders regarding the upturn in mortgage lending which has been due to the housing market improving significantly. With support from the government with its ‘Help to Buy’ scheme, this has stimulated the housing market from the bottom end and resulted in a knock on effect up the ladder.

We are seeing an increasing number of Equity Release Supermarket clients using interest only lifetime mortgage products to assist with their house purchase. We can advise on products from Stonehaven, Hodge Lifetime & more2life whereby the interest element & possibly more can be repaid back to the lender with no penalty, & are becoming a high percentage of our overall equity release plan recommendations.

Additionally, we are experiencing retirees at a critical point in their lives looking to downsize, or move nearer to their families. This could be for disability or financial reasons and moving into a retirement properties where less maintenance is required. Purchasing such property may still require finance to bridge any shortfalls, or create surplus funds for other financial/personal reasons.

5. Burgeoning Confidence & Optimism – There has been a silver lining to the issues of retirement finance…PROPERTY. Staggeringly, 69% of the over 65 year old population own their home outright & unencumbered. The most recent research has calculated the over 65’s own a combined £752 billion in housing wealth!

With this kind of security behind them and the changing attitude towards inheritance is beginning to shape the equity release landscape we are seeing & being developed as we speak. Traditionally, roll-up equity release schemes were the norm. Compounding of interest put many people off releasing equity. As a consequence, interest only lifetime mortgages have come to the fore. In being able to control the balance by making regular or ad-hoc repayments, one can now maintain a level balance, or even reduce it year-on-year. We have evidenced the growth in inheritance protection via lifetime mortgages and will become another of the factors affecting the growth in equity release for 2014.

Flexibility is key for many now entering the market. One major step forward for equity release mortgages came with the advent of drawdown lifetime mortgages. Here borrowers can withdraw tax free cash in stages from a pre-agreed facility. Drawdown equity release now accounts for over 64% of all plans written during 2013. Hence, another good factor to influence the popularity moving into 2014.

Finally, we have the latest news there will be a new equity release provider in early February – Pure Retirement will be entering the market with an initial 2 product launch, followed by more products they anticipate later in the year. This comes hot on heels of recent press murmurings over the weekend that L&G could soon be re-entering the equity release arena after originally departing in 2004 when they white labelled Northern Rocks equity release proposal. There is also much product development behind the scenes with Aviva revamping their lifetime mortgage. Details once known will follow on this website.

All this development and equity release press coverage stokes up the interest in a market that has previously been in the doldrums, but has listened to the consumer & now developing products to match retirement planning needs.

Summary – Equity Release 2014

Equity Release will take off in 2014 because providers have listened to their customers and they can be very demanding and rightly so. Customers want flexibility, they’ve got it, Customers want no early repayment charges, they’ve now got it, Customers want to repay capital without penalty, they’ve got it, Customers want to pay off the interest, they’ve got it, and customers want to partially repay the interest without being tied or committed, guess what? …they’ve got it!

There has never been a better time to consider equity release, so here’s to looking forward to 2014.

Call freephone 0800 678 5159 to discuss any aspects of this article or complete our contact form to register for 2014 updates as & when they are announced.

It seemed such a sensible thing to do at the time. Perhaps you were just starting out on the property ladder or you wanted to move up market to afford that dream home and as a result your income was stretched?

Back then an interest only mortgage was a perfectly reasonable option for a few years until your earnings increased and then you could switch to a full repayment mortgage. Or perhaps, very sensibly, you set up a repayment vehicle such as an endowment plan or you relied on the anticipated growth of your pension fund to take care of the mortgage in the dim and distant future?

Reaching retirement with an interest only mortgage

Life never quite works out as expected and here you are, approaching or beyond retirement, with a mortgage still outstanding and with a mortgage lender demanding to know how you intend to repay. Either you never got around to switching to a repayment mortgage or, by reason of poor investment performance or poor advice, your repayment fund has fallen woefully short of target.

You are not alone! Earlier this year the Financial Conduct Authority report that that almost half of those borrowers with interest only mortgages, approximately 1.3 million people, may not be able to repay their mortgage. And the average shortfall is estimated to be £71,000.

Can the high street lenders help?

So how have high street mortgage lenders responded? Mainly by applying higher interest rates to existing interest only mortgages or by forcing borrowers into repayment plans, usually very short term for borrowers over 60, with little regard to affordability or even existing and adequate savings plans.

So how do you break free from this “mortgage prison”?

Firstly, you must consider your options for the future;-

If you have savings, do you want to use them to reduce the outstanding mortgage, bearing in mind that the cost of the mortgage will certainly outweigh any return you are making on your savings?

How much of your savings do you want to retain as a cash emergency fund?

Do you intend to move now or within the next few years and, if so, will this allow you to repay the mortgage, cover all the moving costs and leave sufficient finds to re-house yourselves?

Secondly, if these options are not available to you and you want to remain in the family home, then you could consider an equity release mortgage, preferably after eliminating all other possibilities and following consultation with your family.

How can equity release schemes help?

There are two types of equity release plans approved by the Equity Release Council and they come with the following written guarantees:

You can stay in your home for life or until you go permanently in to care. In the case of joint applicants, this is until the survivor dies or goes in to care.

The plans are portable to other acceptable properties if you want to move.

No further monthly interest payments to make, unless you elect to do so.

You will never leave a debt to anyone due to the inclusion of a ‘no negative equity guarantee’

The two types of equity release mortgages are

Home Reversion Plans – where you sell a percentage share of your home in exchange for a cash lump sum or regular income.

Lifetime Mortgage Schemes – where you release funds secured on your property with the option to either roll-up the interest with no monthly payments, or to pay monthly interest in full or part.

Case Study example

A couple aged 66 and 65 living in their home valued at £300,000 and desperately wanting to repay an interest only mortgage of £60,000. The maximum they could raise from a standard lifetime mortgage would be 29% of the property value, i.e. £87,000. They have options and the following are examples of mortgage products currently available:-

a) They can choose to borrow £60,000 (plus more to cover fees) to repay the existing lender and have the interest rolled-up for life with no further monthly payments. The valuation fee could be free with some of the current equity release deals available. The other costs taken by lender, solicitor and adviser could amount to approximately £2,000 which could be deducted from the loan. The interest rate fixed for life on equity release plans such as the Aviva Lifetime Flexi could be as low as 5.62% (5.80% representative APR) and, in addition, they could have ready access to a cash reserve if they wanted to borrow more in the future.

b) They can choose to borrow the £60,000 (plus more to cover fees) and pay the monthly interest for life or for a fixed number of years. Dependent upon income, the lifetime fixed rate could be fixed as low as 4.75% (5.10% representative APR) resulting in a maximum monthly interest payment of £238pm. However, if this is too much for their budget they could elect for alternative plans such as Stonehaven’s Interest Select range & opt to pay a lesser sum each month (minimum of £25). The remaining unpaid monthly interest would be rolled up and repaid at the end. The fees are approximately the same, but a valuation fee of £252 would be payable with the Stonehaven application form. Hence, we have interest only lifetime mortgage options to suit.

A new breed of lifetime mortgages

Recently, a new form of lifetime mortgage has been developed to help those looking for the maximum possible release. The enhanced lifetime mortgage, or ‘ill-health equity release plan’ has been developed with the maximum release in mind.

Although the maximum equity release isn’t suitable for everyone, it has its place for those who desperately want as much as they can release for either health reasons or a ‘needs must’ basis.

They differentiate from standard lifetime mortgage schemes by assessing someone’s medical history. Essentially, the worse one’s health has been, the greater the potential release. These plans are underwritten & are offered by actuarially based companies with experience in the field of pension annuities where similar principles are employed.

Therefore, an enhancement can make the difference between be able to repay that interest only mortgage, or not, so enhanced lifetime mortgages should always be considered with your adviser.

Summary

Equity release is a sensible option to escape becoming a “mortgage prisoner” but expert advice from a qualified equity release adviser is always essential. Explore the alternatives first and discuss matters with your family to obtain a second opinion.

If you would like a free initial consultation to assess your interest only mortgage options, please contact Mike Vicary of Equity Release Supermarket, on 07795 195302.

Mike has successfully helped people make the interest only remortgage transition, thus enabling retirees to remain in their home & avoid becoming an ‘interest only mortgage prisoner’.

A new and rather unusual expression has recently emerged which is the term – ‘silver splitters’. It hasn’t made the Oxford Concise Dictionary yet, but I suspect it’s just a matter of time!

Figures released by the Office for National Statistics (ONS) for the year 2011 reveal that 8% of all men divorcing in the UK were aged 60 and over. The equivalent figure for women aged 60 and over was 5%. Compare this to 2001 when these figures were 4.6% and 2.6% respectively.

While overall figures for divorce have been falling, divorce amongst the retired and elderly have been increasing significantly, resulting in financially strained circumstances for many at a time when they should be enjoying life.

This increase in the number of silver splitters appears to be the result of the ‘baby boomer’ generation reaching retirement, experiencing the empty nest syndrome with children departed, looking at each other and deciding that they have little in common. Matters take their course and separation is followed by divorce.

Next follows the murky area known to the legal profession as ‘ancillary relief’ which is quite separate from the divorce itself (or ) and is concerned with the financial settlement between the parties. In the absence of an amicable agreement the family court can dictate how the assets in the marriage are shared out, and that includes the matrimonial home irrespective of whose name is on the deeds.

This is where help from equity release can come into play to facilitate the financing of any payment between the divorced parties and to alleviate the prospect of poverty and homelessness for either ex-spouse.

Silver Splitters Case Study

Let us take an example. A couple, both aged 65, jointly own a property valued at £300,000 and they have paid off their mortgage. They decide to divorce but the wife wishes to remain in the family home and as the split is amicable the husband is willing to accommodate her wishes, but in exchange for a cash payment. By applying for a lifetime mortgage at the age of 65 the wife can raise up to 30% of the value of the home, i.e. £90,000. The property is transferred into her sole name and simultaneously the lifetime mortgage proceeds of £90,000 are paid over to the husband.

This leaves the husband with £90,000 cash which he can use as a deposit on a property for himself. Being 65 he can also raise a 30% lifetime mortgage on his new home and this enables him to buy a property for say £128,500 (i.e. cash £90,000=70% and lifetime mortgage 30%=£38,500).

Alternatively, if both parties in my example agreed to sell the matrimonial home and split the proceeds equally then prospects look brighter. With say £150,000 each as a deposit and with a 30% contribution from a lifetime mortgage, my divorced couple would each be looking to buy new homes in the region of £214,000. (These examples do not take fees into account but these would be roughly £1,800 for both parties, plus moving costs).

The husband and wife could have two options on the types of equity release schemes available. They could elect to make no further payments to make for life and opt for the roll-up lifetime mortgage which would see the balance increasing yearly.

Alternatively, they can apply to take out an interest only lifetime mortgage and repay the monthly interest which would render the lifetime mortgage balance the same throughout. This is ideal should they be considering leaving a fixed inheritance for their beneficiaries.

How is the equity release mortgage repaid?

Dependent on which type of lifetime mortgage is selected, the final balance is usually upon repayment of the loan and any accrued interest takes place on death, entry into residential care or earlier sale of the property.

And the option to avoid monthly interest payments could be very attractive to divorced ex-spouses on reduced pension incomes. This is maybe the reason why the roll-up equity release types are the most popular?

Equity release is increasingly being used to fund divorce settlements, either by the parties themselves or by concerned parents. If you find yourself in a similar situation in experiencing divorce in retirement and need financial advice on how to separate the matrimonial home then please contact Mike Vicary of Equity Release Supermarket on 07795 195302.

All discussions will be kept in strictest confidence and any initial consultation will be FREE of charge. I look forward to speaking with you.

With an ever increasing ageing population, more and more retired homeowners find that their properties are becoming too big to live in. In conjunction with this another significant financial burden is the ever increasing energy costs associated with heating larger properties.

This could mean that they make a choice whether to ‘eat or heat’. An old cliché yes, but a very apt and true one.

Specialist housing, or retirement apartments have been around for more than 30 years and just 1% of over 60’s are estimated to live in these types of properties. For most, moving to a retirement property can ease the pressure of excessive bills, plus give a new lease of life and community spirit.

For others though, a retirement apartment could be seen as not being financially prudent or comes with some uncertainty for a number of reasons:

Location: Specialist retirement apartments may be more expensive than the value of your own home.

Service charges: These are payable annually, and in line with inflation, they tend to be an increasing sum.

Pension income: May suddenly be reduced upon the demise of an occupier.

If you already live in a retirement apartment, you may have the concern that with increasing costs and service charges, you may not be able to maintain your cost of living, and have the worry of potentially needing to sell.

Did you know however, that there could be a solution?

As an Equity Release Specialist, I have over the last 12 years been able to provide homeowners with an alternate way of being able to purchase a retirement apartment or to raise funds to cover on-going costs and services if you already reside in one.

Firstly, if you are looking to purchase a retirement apartment, by releasing equity, you could raise the shortfall between the sale of your current home and the purchase price of your proposed new property. The equity release could be raised on your new property and would complete at the same time as your sale and purchase. The equity release application could also be on a roll-up, or even interest only lifetime mortgage basis to fit in with one’s inheritance requirements, or household budget.

Secondly, if you are already residing in a retirement apartment, you could have the option of releasing equity to cover your annual service charges. This could be by way of a lump sum lifetime mortgage which additionally has the option of a cash drawdown facility. This would particularly suit those looking to take annual withdrawals to supplement their income & cover the costs of maintaining residence in their retirement home. The drawdown facilities with many equity release schemes can allow as little as £1000 withdrawals at a time to suit those not wishing to withdraw too much.

Case study 1

Mr & Mrs F lived in the West Midlands, but had always dreamed of retiring to the coast and live out their remaining years in the peace and tranquility of a property with a sea view. Their 3 bedroom house was worth £175,000.00 and they wanted to downsize. Mr F was not in particularly good health and he wanted to make sure that Mrs F didn’t have the financial worry or burden that their large home would have if he pre-deceased her. Downsizing though didn’t necessarily mean down-pricing. The purchase price of their dream apartment by the sea was £200,000.00, meaning a shortfall of £25,000.00 plus the associated moving costs.

By giving Mr & Mrs F full impartial equity release advice and recommendation, I was able to offer them a Lifetime Mortgage lump sum through a specialist interest only lifetime mortgage lender for £35,000.00. This allowed them to cover both the £25,000.00 shortfall to facilitate the purchase, plus £10,000.00 for moving costs. Overall, this not only assisted with the purchase of their retirement apartment by the sea, but also enabled them to live there in financial comfort.

Case study 2

Mrs S was already living in her retirement apartment when there was the untimely demise of her husband. Now just in receipt of her own pension, Mrs S was concerned that she would not be able to cover the on-going living expenses.

The service charges amounted to £2,704.00 per annum (£52.00 per week) and being on a reduced pension, Mrs S would struggle to maintain her standard of living plus pay her normal household expenses. Being a specialist in equity release, I was able to advise Mrs S of her options, including a full benefits check.

Mrs S was just over the threshold for benefits, therefore I could look at the option of a drawdown lifetime mortgage. Mrs S released an initial amount of £10,800.00 to cover four years’ service charges, leaving her with a remaining cash reserve of £21,600.00. The drawdown facility allowed Mrs S to release sufficient funds each year thereafter to pay her service charges on an annual basis.

How Equity Release Supermarket can help…

Over the years, I have helped many clients in the same or similar situation and have such pride in doing the job I love and being able to assist purchasers and homeowners alike. Being independent lifetime mortgage advisers Equity Release Supermarket have vast experience in assisting its clients with retirement apartment purchases or releasing equity on them.

In addition we have access to the best equity release deals including cashback, free valuations and specially reduced interest rates. We always offer a free initial consultation, to see whether we can assist the over 55’s with retirement mortgages and financial help.

If you would like more information on how these equity release plans work, please contact Marcelle on 0800 783 9652. Alternatively, please email mark@equityreleasesupermarket.co.uk

We often read comments in newspapers, or see reports on TV, that before taking equity release you should always consider your alternatives, as there maybe financial solutions that have not been previously considered. One of these which has created much debate recently is the possibility of downsizing.

This article, discusses the advantages of downsizing and how equity release schemes can still have an important role to play in such situations.

Equity Release versus Downsizing

The practice of downsizing, effectively means selling one property at a higher value than the one you wish to move into. Therefore, the equity generated from the price differential can be used to support you financially during retirement. This is usually the main reason for people deciding against taking equity release.

Downsizing is fine in principle, and it is one of the options Equity Release Supermarket advisers always discuss with clients. However, for economic and personal reasons, the idea of downsizing can be impractical.

Equity Release Case Study – How downsizing works in principle

Take for example Peter and Clare, both aged 73 and living in their semi-detached house worth £275,000 which they’ve owned for over 30 years. They are settled in the area, their family and friends are local to them and they feel comfortable and safe in their current surroundings.

Unfortunately, they still have a mortgage of £100,000 and the lender has informed them they will need to repay this by the time they reach the age of 75. Like many people in their situation, they do not have the money set aside to do so. Their family are in no position to help as they too are struggling to keep their own heads above water!

So what are their options?

They could sell up, pay off the mortgage and look for another lower valued property. After taking into consideration the costs of moving this would mean considering properties around £165,000. Unfortunately, there are no properties of this value nearby, as even smaller properties locally that would still cost them in the region of £200,000.

Consider a remortgage with another lender. This would involve switching their £100,000 mortgage to another lender. However, most high street banks & building societies will not allow borrowing beyond the age of 70, or even 75.

The only option it would seem is to have to move further away, to an area they would not feel comfortable with, and considering this would be their last ever move, it must be the right decision as happiness during retirement is key. This situation leads to anxiety and stress for the couple as their network of friends and family would no longer be around them and they would be moving to an unknown location which may turn out to be both undesirable and unpopular.

Therefore, only option 1 is feasible, but there is still the issue that the property would not be entirely suitable for their requirements moving forward.

Revised Case Study – The maths of upsizing

Let’s revisit option 1 again, as there is some good news for those that wish to downsize.

Equity release schemes can actually allow you to ‘up-size’ when moving house by using the equity release tax free cash to help fund the purchase of the new property. This would mean Peter & Clare still purchasing of a lower valued house. However, by using a new equity release plan in conjunction with the purchase, they can now attain property values of around £200,000+, which they needed to stay near to where they currently live.

Taking Peter & Clare’s example again. The couple are both aged 73. Using the Equity Release Supermarket calculator, they could borrow upto £78,000 on a property worth £200000, on a roll-up lifetime mortgage basis.

This would enable them to purchase the £200,000 property; by using £165,000 of their own equity, plus the difference coming from an equity release plan. In fact given the equity release calculation figures they could go even higher if they wished to do so, or even use some of the surplus to have a small emergency fund for the future which is missing at the moment.

Now Peter & Clare have come to terms with the downsizing, the couple can now consider fine tuning their equity release solutions.

In fact, they could consider a lender allowing interest payments – commonly known as an interest only lifetime mortgage provided by companies such as Stonehaven. These off-set the effect of the rolled up interest, but unlike their existing mortgage which comes to an end in two years’ time, a scheme such as Stonehaven’s Interest Select Plan would be open-ended and therefore run for the rest of their life.

In some cases, depending on their state of health, Peter & Clare may be eligible for more money if they could take advantage of enhanced lifetime mortgage rates offered by some lenders. These enhanced lifetime mortgage schemes can lend more than any standard lifetime mortgage & give that extra amount making all the difference.

Upsizing Summary

So as a solution, what does this up-sizing option offer: –

The opportunity for the couple to repay their existing mortgage in full

To move to a location near to their current property, ensuring that they can maintain the support of family and friends

To continue to live in a safe environment with familiar surroundings including local amenities which have become increasingly important to them, such as their doctor and local hospital along with good transport links and shop

To purchase a property which they’re happy with rather than taking on a property ‘because they have no choice’

To down-size is an option which may be suitable to some, but like all decisions taken it needs careful consideration. This is where specialist equity release advice can make all the difference to retirees making such important financial decisions in retirement.

Having an alternative in the form of equity release scheme or interest only lifetime mortgage may enable them to make a decision based on a more practical solution and providing clients ‘peace of mind’, something which is not commonly advised upon in the news.

Equity Release Supermarket has experienced advisers who have dealt with such situations & can therefore make all the difference to people over 55 & in retirement.

Equity Release Supermarket can today announce the launch of the new Hodge Lifetime Retirement Mortgage Plan.

Only available through a selected number of intermediaries, the plan aims to provide a solution to the crisis surrounding the repayment of interest only mortgages.

Many articles have been written highlighting the plight of 2.6 million interest only mortgage holders who have no repayment strategy in place at the end of their mortgage term. Today marks the equity release industries response to this crisis.

Hodge Lifetime has identified the growing crisis in people approaching retirement with interest only mortgages and no exit strategy. There have been many reasons for this situation such as poorly performing endowments, pension plans, ISA’s or simply that no repayment plan was ever in force.

The question for interest only mortgagors is how are they ever going to repay the mortgage balance?

Equity Release Supermarket is experiencing an increasing number of enquiries by people looking for an emergency repayment route from their existing mortgage provider. Where once lenders were willing to extend the mortgage term, under new FCA guidelines there is now a reluctance to extend the mortgage term, leaving repayment as the only option.

The options available to repay this debt include downsizing property, remortgage to an equity release scheme, transfer to another interest only mortgage, or cash in any available investments. Each of these can present their own set of problems.

For those looking to downsize is the ability to sell the property within the timescales provided by the mortgage lender. Equity release schemes may present limitations as to how much they can lend as they are based on a loan-to-value ratio. Depending on age, a conventional mortgage may not be available as they will not usually lend beyond age 75. Investments may not be available if used for income, or even present at all.

How The Hodge Retirement Mortgage Plan Can Help

Hodge Lifetime is launching a mortgage product to compare to the Halifax Retirement Home Plan which proved immensely popular until its withdrawal in August 2011.

Similar in concept, it enables people between the ages of 55-70 to remortgage their properties for any purpose. The amount borrowed is based on income multiples rather than a loan-to value ratio, as with equity release schemes.

Monthly payments of interest are then made to the lender until age 80, effectively maintaining a level mortgage balance. At that point a decision can be made as to whether you wish to continue with the payments for life, or cease & allow the interest to roll-up thereafter. The latter option would result in the mortgage balance thereafter increasing for the duration of the term.

By using affordability as the basis for lending criteria means people on good retirement incomes can borrow upto 50% of the property value with Hodge, subject to income. Compare this to the current interest only lifetime mortgage lender – Stonehaven, who would only lend a maximum of 19% at age 55.

Therefore, on a property valuation of £250,000 the difference between the two schemes is a significant £77,500.

Features of the Hodge Lifetime Plan

Flexible Repayment – Hodge will allow 10% capital repayment each year upto year 6 with no penalty

Fixed Early Repayment Charge (ERC) – over the first 5 years the penalty decreases from 5% down to 1% of the capital repaid. No ERC exists after year 6.

With changing attitudes towards inheritance planning, and generational gifting becoming increasing common practice, we look at why equity release is being more widely used as the retirement vehicle of choice.

Having advised on equity release schemes for the past 14 years, we’ve witnessed firsthand the sea change in perceptions over how much of an inheritance parents are now wishing to leave their children.

Couple this with the growing acceptance of retirement equity release schemes by the over 55’s, we are now seeing real evidence through equity release enquiries the lengths parents are actually prepared to go to for their children.

Why a shift towards equity release?

In the early days of lifetime mortgage & home reversion plans, people were looking towards a release of equity mainly for lifestyle purposes; a new car, holiday or extra income. Today’s economic environment throws a different light on the real purposes for releasing equity – necessity (mainly debt consolidation) and generational gifting.

Equity release schemes are now providing a vehicle of choice for many that were once looking towards the retirement mortgage market when they reached state pension age. With schemes such as the Halifax Retirement Home Plan now being made redundant & mortgagees reigning in their lending criteria on the much maligned interest only mortgage, it has left little scope for retirees to find a route into secured lending.

How can equity release schemes assist?

Basically anyone over the age of 55, with a main residence valued above £70,000 could become eligible for an equity release mortgage. Further criteria does apply, such as any existing mortgage, property type etc, however in principle age & valuation are the main eligibility factors.

To ascertain your maximum release, tools such as our equity release calculator are available on the Equity Release Supermarket website. Based on the age of the youngest applicant & the current sale value of your home, the equity release calculation will prove of assistance as to whether you can raise sufficient funds to meet your financial objectives.

For those with an outstanding mortgage leading upto, or actually in retirement, equity release schemes have become a get out of jail card. Having a mortgage at retirement is not a crime, however the ability to repay it has become a problem for many as lenders are beginning to tighten their belts on mortgages into retirement. We have instances of clients anticipating renewal of their mortgage at retirement, only to see panic set in when their lender refuses to extend & then rub salt in the wound by demanding repayment. This would ultimately result in either a remortgage, which is becoming increasingly difficult, or sale of the property to downsize. Neither offer stress free options!

Bearing in mind these mortgages were actually set up with a final repayment end date, one cannot always expect in today’s economic environment the banks to be that sympathetic in such instances. However, some leniency would be welcomed, or maybe that’s just wishful thinking.

Equity release functionality

We have therefore seen how people are entering retirement still tied down with a mortgage. However, there are also an increasing number with unsecured debts, predominantly credit cards which people have trouble shifting once their income drops entering retirement. Perhaps realisation that there income has fallen hasn’t yet set in, which coupled with household spending continuing apace, sees the error of their ways without re-addressing the fundamental principle of ‘budgeting’.

The ‘equity release safety net‘ is becoming a credible solution for many in such situations. By taking a lifetime mortgage scheme, whether on a roll-up basis or more commonly an interest only lifetime mortgage, the debts can be consolidated into a secured loan fixed for the rest of their life. Depending on affordability once the debts were cleared, and attitude towards children’s inheritance, would determine whether the interest only, or roll-up version is selected.

Choosing roll-up means NO monthly payments. This has a benefit in leaving a household budget with a greater disposable income, particularly if all debts have been repaid. The negative aspect of roll-up is that the balance will increase over time therefore eroding, all or some of the kid’s inheritance. There are other factors that could affect the size of the inheritance, the main one being how much property values could increase by over their lifetime. Everyone has their own opinion on that.

Selecting an interest only lifetime mortgage engages an element of future discipline in that regular payments need to be maintained. However, there are significant advantages. These are that as the interest is being paid monthly, the debt will remain level for the duration. This has the added benefit that if house prices do increase, there could be an even larger inheritance to leave, even after you have taken a release of equity for yourself. With interest rates on these schemes starting at 5.59% (6.0% APR) and fixed for life, interest only lifetime mortgages now offer a credible equity release solution for many that were starting to despair at their lack of options.

Equity release gifting acts as a form of ‘early inheritance’

Finally, we touch on the growing realisation that children seem to have of accessing their inheritance now, rather than later. With difficulty for first time buyers in the current property market, the younger generation have turned to the bank of mum & dad for the answer to getting on the property ladder – using equity release.

This has been the biggest change in attitude we have seen in the 14 years of equity release schemes.

It has been two-fold: –

the acceptance of parents to gift an inheritance now rather than later

that the stigma of having to leave an inheritance when they die has gone

Increasingly, parents are taking equity out of their properties to gift to their children, mainly to invest in another property, occasionally for business or divorce purposes. It maybe all too easy for the children to say they would like their inheritance now, which is all well & fine if this is being taken out of their parents house & re-invested into their first property. Couple this with the governments help to buy scheme & providing 20% deposits leaves some children not having to strain themselves too much financially these days, judging by the many options available.

A great idea or not?

Some may say so; others may feel that the younger generation gets it too easy these days. Mortgages of old were also hard to come by & you had to save over a long period of time to find your deposit. Your lender even had to be the bank you held your account with!

It just seems the ‘I want it now’ attitude has arrived & the old fashioned ways of striving to find the deposit seem to have disappeared.

Whatever the consensus of opinion is, equity release is here to stay and finding such helpful scenarios of inter-generational gifting to become an advantage is certainly to be welcomed.

To discuss the topical areas within this article, or find out more about equity release and its uses, please contact the Equity Release Supermarket team on Freephone 0800 678 5159.